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Netflix (NFLX) Beats, Shares Lower on Outlook

|Includes: Netflix, Inc. (NFLX)
9:00am (EST)

The market did next to nothing after our midday update yesterday as things pretty much stay where they were.  The Dow and S&P 500 finished with small losses while Tech squeaked out a tiny gain.  The sluggish trading was pretty much what we expected after a long holiday weekend as traders seemed content on watching Monday's action instead of getting involved.

The bulls made little effort to push the market higher while the bears remained cautious ahead of a number of high-profile earnings this week.  There were a number of Chinese internet companies that did well on Monday - Baidu (BIDU, $151.96, up $3.31), Sohu.com (SOHU, $104.14, up $8.45), and China Dangdang (DANG, $25.46, up $1.46) did well - but, all eyes were on Netflix (NFLX, $251.67, down $0.55) which announced after the closing bell.

Flashback from August 12, 2010 - here were our thoughts on Netflix after calling for a double a year earlier when shares were at double nickels (quotes from that day):"     
                                                                                                                    
One stock bucking the trend is Netflix (NFLX, $131.17, up $4.70) which is at all-time highs.  The stock has been a rocket ship since last November when it was trading in the $50’s and is now in “blue-sky” territory.  Wall Street stole this catchy phrase from the Allman Brothers and it is used to describe stocks that are at historic highs.  Usually the breakout continues and a company will split its stock if it has a history of doing so.

Stock-splits are a non-event, really, except that you own more shares (unless it is a reverse stock split) but they make it easier for individual investors to afford the stock.  We would like to see a split so we can play the options.  We normally shy away from option trades on stocks over $100 so we would welcome the news." (NYSE:END)  
                                                                                                   
Folks, we are amazed at the parabolic move shares of Netflix have made over the past 2 years and the one thing that has kept us on the sidelines is the high share price (because there hasn't been a split) which usually means lofty options prices.  Instead of paying $1 (or $100) for each option contract, you might be paying for $1,000 as the premium for a near-term strike price might be $10 instead of a buck.  In other words, you are risking 10 times more money on each option contract when you can play stocks under $100 for much cheaper.
 
 
However, there is some good news.  Netflix trades WEEKLY options which are way cheaper so there will be a trade down the road once we find the right opportunity.
 
As far as the numbers Netflix posted last night and what it means going forward, let's take a look. 
 
The company reported better-than-expected earnings of $60 million, or $1.11 a share, versus forecasts for $1.08 a share, on average.  Netflix added over 3.3 million customers for the quarter but offered a weak outlook going forward by saying profits for the current quarter would come in between $0.93-$1.15 a share.  The suit-and-ties had penciled in $1.19 a share.
 
As a result, shares were down 5% in after-hours last night which has carried over into this morning.  Netflix will probably open at $238, down $13 and we have listed some options to watch.
 
Futures are pointing towards a positive start to today’s trading. Dow futures are up 38 points while the S&P 500 futures are higher by 6 points. Nasdaq futures are showing an 8 point advance.
 
Subscribers, please log into the Members Area to view a couple of charts for today.